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Cost of living claims undermined by ABS report

ELEANOR HALL: Well, despite the difficulty reading the economy, politicians are always talking up how tough life is for Australian families.

But their claims that households are being weighed down by the soaring cost of living don't match up with the facts.

A comprehensive analysis of household spending by the Bureau of Statistics shows that in real terms we're richer than we were six years ago. And while we're spending more on essentials like housing and transport, we're also spending more on recreation.

Lexi Metherell takes us through the numbers.

LEXI METHERELL: Claims over the cost of living are a familiar refrain from politicians.

WAYNE SWAN: Many Australians are doing it tough.

TONY ABBOTT: The cost of living just goes up and up.

LEXI METHERELL: But reports that the average household budget is groaning under the weight of rises in the cost of living are contradicted by the latest six-yearly assessment of spending by the chief statistician.

According to the Bureau of Statistics, in real terms we're growing richer.

The average household spent about $1,240 a week in 2010. That's $340 dollars more than six years earlier.

Part of that is because prices had risen. Inflation was up 19 per cent.

But it's also because incomes had risen by 50 per cent, and that suggests that although we may be paying more for goods and services we're consuming more as well.

BEN PHILLIPS: The simple reality seems to be that people are actually doing really quite well and the politicians really are quite a long way off the mark there.

LEXI METHERELL: So what are we spending that extra money on?

Ben Phillips is a principal research fellow at the National Centre for Social and Economic Modelling.

BEN PHILLIPS: The areas that people are spending more money on is we've seen internet charges up by 150 per cent, we've seen school fees up by more than double. People are spending twice as much on pay TV. They're spending 75 per cent more on restaurants.

So these are- many of these of course are really non-essentials so it really does seem to be that there has been an expectations change, that people are spending more on these luxury items and that's really because their incomes are so much higher than what they were just six years ago.

LEXI METHERELL: Tim Soutphommasane is a senior project leader at the progressive think tank, Per Capita.

TIM SOUTPHOMMASANE: Australians are doing pretty well and we're not struggling, as our politicians and our media like to make it out to be.

LEXI METHERELL: Is inflation a good measure, though, of the cost of living?

TIM SOUTPHOMMASANE: Well, there are two particular measures that the ABS uses.

There's CPI, which measures a basket of household goods - and then there's also an analytical cost of living index, which actually measures cost of living specifically for four different types of Australian households.

They're the employee households, pensioner households, self-funded retirees and also unemployed households. And on those measures you do find that the cost of living has been more or less in line with CPI.

So while there are people out there who criticise the CPI as an inaccurate measure of the cost of living, you actually have a specific cost of living index measure that has been established by our statisticians to account for the inconsistencies that exist in CPI.

LEXI METHERELL: But despite the bureau's findings that we're better off, Australian consumers are still in the doldrums.

Confidence is down and households are stashing any surplus cash in savings accounts.

That may be because there's been a big rise the cost of one of our biggest outlays - our home.

The ABS says spending on rent and mortgages was up 55 per cent over the period. That's more than the rise in incomes and in inflation.

TIM SOUTPHOMMASANE: Well, the evidence certainly suggests that the amounts that people put aside to service their mortgages or pay their rents has been rising and that's certainly noticeable in the data.

I think if you look at things in the big picture, though, you need to understand that lifestyle expectations had certainly influenced the way that Australians look at the cost of living.

So people are more likely now to bundle rises in food, rises in petrol, rises in electricity bills with the rises in mortgage repayments and rent that they're paying.

But it's important to distinguish these things, and important to understand that there isn't a general cost of living crisis taking place.

There's no question that there are Australians, particularly those on low incomes, they're feeling the pinch. But when it comes to middle and higher income households in particular there is no cost of living crisis.

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